What is the difference between an equity release and a lifetime mortgage?

A lifetime mortgage has become the most common way for older homeowners to release equity because it is more in demand, flexible, and versatile than ever before. A lifetime mortgage and equity release are the same thing. A lifetime mortgage is a type of equity release mortgage. The other type is called a Home reversion Plan.

What is a lifetime mortgage?

The most common form of equity release is a lifetime mortgage. It’s a financial product that allows homeowners aged 55 and above to borrow money against the value of their home while maintaining 100% ownership for the rest of their lives.

Accessing even a fraction of your home’s built-up equity might be a perfect way to raise money and a better option than dipping into your savings.

The money can be used for any legal reason such as increasing your income in retirement or making those long-needed Home Improvements or even taking a well-earned holiday!

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How does a lifetime mortgage work?

A lifetime mortgage is intended to last the rest of your life, with interest compounding over time. You are not obligated to make monthly payments, but you do have the option to do so if you wish.

As a result, you won’t have to pay back the entire sum plus interest before you die or reach permanent long-term care. It will normally be cleared with the selling of the home at this stage.

How do I take out a lifetime mortgage?

Because of the variety of products available, professional advice is required before releasing equity, as a lifetime mortgage can affect your eligibility for means-tested benefits and will reduce the amount of inheritance you leave for loved ones.

If you wish to apply for a lifetime mortgage, then we suggest you speak with one of our highly experienced advisers to go through your options. They can then apply for the mortgage for you and guide you every step of the way. You will also need to get a conveyancer who knows how to process a lifetime mortgage because they are different to traditional mortgages. A mortgage valuation will also be required by the mortgage company.

Due to the pandemic, this could take longer than normal, but the funds will be transferred to your designated bank account once done. The whole process should take 6 – 8 weeks from application to you receiving your money.

You must pay off all other debts secured against your home. The solicitor will repay your current mortgage company or secured loan lender on completion. Then you can spend the money however you like and start to enjoy your retirement more.

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Who qualifies for a lifetime mortgage?

To be eligible for a lifetime mortgage, you must meet the following criteria:

  • You must be 55 years old or older.
  • Own or wish to own a home worth at least £70,000 in the United Kingdom.
  • Want to release at least £10,000.
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How much equity do I have in my home?

The value of your house minus any debt secured against it is your equity: a £350,000 home with a £50,000 mortgage leaves £300,000 in equity.

What’s the difference between equity release and a lifetime mortgage?

Nothing. A lifetime mortgage is a type of Equity release mortgage. There are two forms of equity release plans. A lifetime mortgage, the other being a home reversion plan (see below).

Home reversion plan or lifetime mortgage?

A home reversion plan entails the provider purchasing a portion or all of your home in exchange for a lump sum or monthly payments. A lifetime mortgage gives you a lump sum, but you retain full ownership of your home. In both instances you will be able to live in your home until you pass away or go into full time care.

Why choose a lifetime mortgage?

Despite the coronavirus pandemic, the long-term trend of increasing property values has persisted, and prices have seen a slight increase. Because of low-interest rates and economic uncertainty, many over-55s consider their home to be their most valuable financial asset.

Flexible features offered by Equity Release Council-approved lenders and advisers will also assist you in deciding whether or not to go for a lifetime mortgage. There are guarantees the equity release council provide for homeowners and borrowers of lifetime mortgages and they are:

  • Fixed interest rates for the rest of your life.
  • A no-negative-equity contract ensures that you will never owe more than the value of your house.
  • The ability to pass and transfer your lifetime mortgage at a later date, according to the lender’s requirements.

Lifetime mortgages also have the following benefits:

  • Flexibility – Some lenders allow you to take as little as £10,000 tax-free and save the rest for a rainy day.
  • Security – Like all lifetime mortgages, your home stays yours; you are simply borrowing against it.
  • Control – There are many methods for reducing the effects of interest accumulation over time. A drawdown lifetime mortgage allows you to draw down money as and when you need it ensuring you only pay interest on the money you have taken or “drawdown”. Certain lifetime mortgages allow you to pay off the interest monthly or annually, lowering your borrowing costs significantly.

Lifetime mortgage interest rates

Many products have a fixed interest rate for life and although variable rates are available, most consumers choose fixed rates so they can see precisely how much they owe over time and are shielded from rate increases.

Variable-rate plans will have a lower rate at first, but the rate may increase over time. However, any product with a variable interest rate offered by a lender approved by the Equity Release Council would have an upper rate cap that it cannot exceed.

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Speak to one of our Equity Release advisers today

Our equity release advisers can offer advice on lifetime mortgages from lenders members of the Equity Release Council, guaranteeing a range of product standards.

We are also members of the equity release Council which means we voluntarily abide by their guidelines and will only recommend lifetime mortgages backed by the equity release Council.

It’s best to compare all the lifetime mortgage options with an expert equity release adviser. Our advisers can search the whole of the market for a range of products to identify one that best serves your situation and talk you through the features. You can even request a personalised illustration so you can assess your finances before committing, including the effect releasing equity could have on your estate’s value and any entitlement to state benefits. We will even look to see if there are any state benefits you may be entitled to so you may not need a lifetime mortgage.


What does a Lifetime Mortgage cost?

Before proceeding, make certain you are aware of all fees. It is possible that you will be required to pay the following fees: Insurance for buildings
  • legal and valuation fees
  • legal and valuation expenses
  • a product arrangement charge to the lender
  • a fee to an adviser for their advice and assistance in setting up the scheme
  • a completion fee, which can be paid at the time of completion or added to your mortgage
Between £1,500 and £3,000 could be spent on these expenses. Early repayment charges, often known as penalty fees, may apply if you pay off your loan early. You must be certain that an equity release plan is appropriate for you.

What is a Flexible Lifetime Mortgage?

A Flexible Lifetime Mortgage, often known as an equity release loan, is a loan that is secured by your house. It permits you to take out a loan against the value of your property while still living there. The money you get is tax-free. The loan’s interest is charged, plus any interest that has already been added. When the last borrower dies or moves out of the house into long-term care, the loan is usually repaid.

What is an Income Lifetime Mortgage?

An Income Lifetime Mortgage is a type of equity release loan that allows you to borrow against the value of your property while continuing to live in it. It provides you with a consistent monthly income for a set period of time. With a minimum initial cash quantity, you can opt to accept the income over 10, 15, 20, or 25 years.

What is an Optional Payment Lifetime Mortgage?

An Optional Payment Lifetime Mortgage, a type of equity release, is a loan that allows you to borrow against the value of your property while continuing to live in it. You will receive a tax-free cash amount and will be able to save money on interest by making monthly interest payments. You can stop paying interest at any time, but you won’t be able to resume them. If you’re nearing the end of an interest-only loan and need to return it, this could be a viable option. Your lender may require you to pay an early repayment penalty.

What happens to a lifetime mortgage when you die?

Your equity release plan is repaid when you pass away. Your beneficiaries must notify your equity release lender, and they typically have 12 months after your death to repay your plan if you have a lifetime mortgage. This is commonly accomplished through the sale of your home, although it can be accomplished through other financial means.

What is the difference between a lifetime mortgage and a residential mortgage?

A residential mortgage is a type of mortgage that most people will be familiar with. It’s the type of loan you take out to help you buy your home. A lifetime mortgage is different as it is a loan you can only take out once you are a homeowner.

Is lifetime mortgage same as equity release?

A lifetime mortgage is a sort of equity release loan that is backed by your property and allows you to release tax-free cash without having to sell it. Homeowners over the age of 55 can get a lifetime mortgage. You have the option of receiving the funds in a large payment, a series of lump sums, or as a regular income.

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